Creditors: who are they and how do you deal with them?
As a business owner, you deal with several parties with whom you do business. One of those parties are creditors. But who exactly are they and how do you deal with them? In this knowledge base, we explain it to you.
What are creditors?
Creditors are parties (private or business) who have delivered a particular product or service to you and have yet to be paid for it. In other words, these are the suppliers.
Accounts payable are on the right, or credit, side of your balance sheet. That means they are a debt (liability) to your company. Thus, you still have to pay money to them. Creditors belong to short-term debt, because the payment period is usually less than one year.
The difference between accounts payable and accounts receivable
A term often mentioned along with creditors is debtors. A creditor is the opposite of a debtor.In other words, it is someone who still has to pay you money for a delivered product or service. For example, think of your customers.
Debtors are on the left, or debit, side of your balance sheet. That means they represent a receivable (asset) for your company. After all, you are owed money by them. Accounts receivable belong to current assets because the payment period is usually less than one year. Creditors still receive money from you.
How do you manage your accounts payable?
Managing your accounts payable is an important part of your financial administration. After all, you want to pay on time and correctly, but you also don’t want to pay too much or too soon. Good accounts payable management helps you to:
- Monitor and optimize your liquidity
- Maintain and improve your relationships with your suppliers
- Control and reduce your costs
- Reduce and prevent your risks
